Holidaying U.S. leaves investors ticking over

LONDON (Reuters) - World stocks made small gains and currency markets traded in a narrow range on Monday as many investors avoided taking strong positions during the U.S. Labor Day holiday with its accompanying lack of key economic news.

European shares were supported, however, by France's Gaz de France GAZ.PA and Suez (LYOE.PA) announcing a 90 billion euro ($122.9 billion) merger, a sign that corporate deals live on despite recent global credit problems.

The underlying tone of financial markets was generally positive after U.S. President George W. Bush and Federal Reserve Chairman Ben Bernanke both spoke at the end of last week about tackling the credit problems.

Bush announced on Friday proposals intended to prevent homeowners from defaulting on risky mortgages, while Bernanke said the Fed would take necessary steps to shelter the economy from turmoil in financial markets.

"Bernanke's and Bush's comments were quite positive, but we still need to look at U.S. economic indicators and determine how much the economy is slowing down," said Kim Heong-hwan, a strategist at Woori Investment and Securities. "Until we can have more confidence, the markets will trade in a boxed range."

MSCI's main world stock index was up around 0.1 percent and its emerging market counterpart scored 0.4 percent.

The FTSEurofirst 300 index of top European shares was up around 0.1 percent.

GDF and Suez cleared the way to create Europe's third-largest power company after their boards approved the revised terms of an 18-month old merger plan.

"At the margin, it will certainly underpin sentiment that the mergers and acquisitions bandwagon continues, but it was a political merger so it's not really something decisive," said HVB Unicredit strategist Gerhard Schwarz.

Earlier, Japanese stocks slid after an unexpected drop in capital spending data.

The Nikkei shed 0.27 percent, or 44.16 points, to 16,524.93. The broader TOPIX index fell 0.17 percent to 1,605.44.

CURRENCIES, BONDS

Japan's yen -- something of a proxy for risk because of its role in the carry trade, where investors sell yen to buy assets in higher-yielding currencies -- was flat.

The dollar was at 115.83 yen and the euro was at 157.83, both essentially unchanged.

The euro was also flat against the dollar at $1.3629.

Euro zone government bonds were rangebound with the two-year Schatz yield at 4.042 percent and 10-year Bund yield at 4.264 percent.

"Volumes are easily the worst of the year so far as market holidays outside of Europe impede activity," said a trader in London.